Investing in property means putting money into real estate with the goal of earning income, a gain on resale or both. This article explains the common ways an individual can take part, what each option asks of you and what to confirm before committing money. It does not recommend a property, a strategy or a return.
Common Ways Individuals Invest in Property
Individuals usually take part in property investing in the ways below. Each has different responsibilities, costs and levels of control, so compare them against your own time, savings and comfort with risk.
- Buying a home to rent out, where you own the property directly and are responsible for tenants, repairs and ongoing costs.
- Buying a property to renovate and resell, where the result depends on the work, the timing and conditions in the local market.
- Buying shares in a real estate investment trust, which is a company that owns or finances income-producing real estate. Shares of publicly traded REITs trade on stock exchanges, while non-traded REITs are not listed on an exchange and can be hard to sell.
- Joining a real estate crowdfunding offering, where money from several investors is pooled for a specific project, often through an online platform.
Managing a Rental Property Yourself or With Help
If you buy a rental home, someone has to find tenants, collect rent, respond to maintenance requests and keep records. You can do these tasks yourself or hire a property manager to handle them. SAP Real Estate offers SAP Real Estate property management services, which cover tenant placement, rent collection and maintenance coordination.
Ask yourself how far you live from the property, how much time you can spend on it and whether you can respond quickly when something breaks. These answers will shape whether self management or a manager makes more sense for you.
Questions to Answer Before You Buy an Investment Property
- What will the property cost to hold each month, including taxes, insurance, utilities you pay, repairs and vacancy periods?
- How will you finance the purchase, and what does your lender need from you before approving a loan?
- How will the rent you could collect compare with similar rentals listed nearby?
- Who will handle tenant questions, repairs and rent collection when you are busy or away?
- What will you do if the property sits empty or needs an unexpected repair?
Understanding Pre-Approval and Financing Terms
A pre-approval letter from a lender generally shows that the lender has reviewed your income, assets and credit at a preliminary level. It is not a loan commitment for a specific property. Confirm with the lender exactly what the letter covers, what conditions apply and how long it stays valid. Loans for investment property may have different terms from loans for a home you live in, so ask your lender to explain the differences.
Weighing Risk Before You Commit Money
Property values can fall as well as rise. A unit can sit empty, a repair can cost more than expected, and a buyer or tenant can be hard to find when you need one. No one can promise a return, so treat any projected income as an estimate to test, not a result to rely on.
Your state securities regulator or the federal Securities and Exchange Commission can explain how REITs and crowdfunding offerings work, and a licensed financial professional can explain how these options would fit your situation. This article does not give investment, legal or tax advice.
Confirm Your Plan with Professionals Before Committing Money
Write down what you expect the property to cost to hold, who will handle tenants and repairs, and how you will pay for it. Review those answers with your lender, a qualified tax professional and a licensed real estate agent before you make an offer. If you want to talk through a property in the Syracuse area, the SAP Real Estate contact form is a direct route to our team.
